Bank Negara takes measures to avoid excessive household indebtedness
Bank Negara Malaysia announced on Friday a set of measures aimed at curbing excessive household debts and to reinforce responsible lending practices by key credit providers.
The measures, which take effect immediately, complements the earlier measures introduced since 2010, and include:
a) maximum tenure of 10 years for financing extended for personal use;
b) a maximum tenure of 35 years for financing granted for the purchase of residential and non-residential properties; and
c) a prohibition on offering pre-approved personal financing products.
The financing tenure will only apply to loan applications submitted after Friday (July 5, 2013).
Bank Negara said the move was because household debts had continued to increase at a strong pace, averaging at an annual rate of 12% over the recent five years.
“While this has been supported by positive income and employment conditions, in the more recent period, there has been a growing trend in offering financial products that are not in the long-term interest of consumers. This includes extended financing tenures of up to 45 years for house financing and 25 years for personal financing,” it noted.
While this may reduce the monthly repayments, the practice increases the overall debt burden of households in the long run, it said.
These measures are issued pursuant to section 31(1)(a) of the Central Bank of Malaysia Act 2009 and apply to all financial institutions regulated by Bank Negara Malaysia, credit cooperatives regulated by the Suruhanjaya Koperasi Malaysia, Malaysia Building Society Bhd and AEON Credit Service (M) Bhd.
It said the key credit providers must observe prudent debt service ratios in their credit assessment to ensure households are protected from rising costs and unexpected adverse events. However, households who have the financial capacity to take on borrowings will continue to enjoy access to financing.